Fund managers are taking a particular interest in Indian equity markets as a relatively safe haven as the US-China trade war heats up. According to Bloomberg, the trade war is shining a spotlight on India as an alternative manufacturing hub to China.

Due to its large domestic economy, India is viewed as being in a better position to withstand a recession. It is one of the world's fastest-growing economies, underpinned by strong structural fundamentals.

The direct tariff impact on India is expected to be minor, given India's relatively low exposure to the US. According to Bloomberg, India accounted for just 2.7% of total US imports last year. This is significantly below China and Mexico, which accounted for 14% and 15% respectively. 

Additionally, compared to Beijing, New Delhi has struck a more moderate tone while attempting to secure a provisional trade agreement with the Trump administration over the next 90 days. This may prove to be a highly beneficial move. If companies decide to shift their supply chains away from China, India could benefit substantially.

Fund managers expect India to outperform

Fund managers looking to reallocate capital to defensive equity markets have named India as a compelling option. 

In a 9 April note, Jefferies Financial Group strategist Mahesh Nandurkar suggested that India should outperform on a relative basis. He cited lower dependence on the US and China, relatively lower tariff impact, and a pro-growth central bank. 

On this basis, Jefferies Financial Group recently increased its exposure to India in its recommended Asia ex-Japan model allocation.

How can ASX investors gain exposure?

For ASX investors looking to follow suit, there are two exchange-traded funds (ETFs) to consider. 

Betashares India Quality ETF (ASX: IIND) tracks 30 high-quality Indian companies. Holdings are selected based on high profitability, low leverage, and high earnings stability. It offers a 12-month distribution yield of 3.4% and a management fee of 0.8%. For the year to date, IIND has declined nearly 7%, outperforming other popular ETFs. For comparison, Vanguard US Total Market Shares Index AUD ETF (ASX: VTS) has declined 12% over the same timeframe. A second option to consider is Global X India Nifty 50 ETF (ASX: NDIA). It invests in India's 50 largest and most liquid companies, spanning a wide range of economic sectors. The management cost of 0.69% is slightly lower than IIND. It has also been a stronger performer for the year to date, declining just 3%.

Foolish takeaway

India has been touted as a potential beneficiary of the US-China trade war. With tensions heating up, companies may consider India as an alternative manufacturing hub to China. Those looking to dip their toes into Indian equity markets may wish to consider adding the Betashares India Quality ETF or the Global X India Nifty 50 ETF to their portfolio.